3Com alters its course

The networking firm drops out of the storage area network market, just five months after it jumped in, leaving analysts to wonder in what direction it's headed now.

January 2, 20024:43 PM PST

3Com is dropping out of the storage area network market, just five months after the networking hardware firm embraced it as a potentially lucrative business.

3Com in November touted the emerging technology as an "explosive growth area" and signed on partners to develop and sell hard disk and tape storage devices that live on a network, rather than on PC servers.

But the networking firm, which has recently struggled financially, decided today that the strategy wasn't worth the effort.

Analyst Scott Heritage, of Warburg Dillon Read, said 3Com didn't have the resources to develop products for the storage area network (SAN) market.

"They targeted it as a potential growth area, but things are tough [at
3Com]," he said. "They probably figured out now that they have to pull back in some areas and not spend so much in research and development."

Today's announcement is part of 3Com's ongoing effort to iron out its business strategy. 3Com earlier this week posted third-quarter earnings of 24 cents a share, beating revised analysts' estimates by a penny. But earnings were far below Wall Street's original estimates of 36 cents, as sales of low-cost modems and networking cards slowed.

A 3Com spokesman said the company ditched the SAN market because it needs to focus on its popular PalmPilot line of handheld computers and its other networking technologies.

"We think it's a fabulous market and companies will make a lot of money," the spokesman said, referring to SAN. "But for the company to be there in the forefront, it's not an investment we're prepared to make."

3Com in November saw storage area networks as a market to sell its hubs, switches, and other networking equipment and partnered with four storage firms--Clariion, Data General, Legato Systems, and MTI--to build products.

"There was some synergy there. It went along with the overall networking business," Heritage said.

The 3Com spokesman said the company was "months away" from any finished products. 3Com is looking to transfer some 45 employees to different divisions, and while the company has not ruled out any layoffs, such a move was unlikely, he said.

In a prepared statement, Bruce Claflin, 3Com's president and chief operating officer, said of the company's decision to ditch the SAN market: "3Com is making a difficult but good business decision. And now is the right time to take these actions, before more money is invested and before product reaches our customers. This decision enables 3Com to shift resources and talents into those areas expected to yield the greatest returns."